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Knowing as to Why a Startup Must Have a Structure of a Private Ltd Company

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Introduction

One might have a brilliant approach and a remarkable idea to start a business, but making it into a reality is indeed a tough path which would require the need to make right choices and decisions.

Startups paves one way through which the business can be given effect to. However the challenge lies in setting up the parameters and concretizing the structure that would be most suitable in every way. One wrong decision made with respect to the foundational structure, be informed that the whole business paradigm would collapse within the blink of an eye.

Therefore it is of utmost importance that the right structure must be brought into substance and practice. Otherwise there are major chances that the startup would not yield results to its optimum level and break before it even gets started.

Understanding the Concept of Private Limited Company

It can be said that a private limited company is an entity that contains the word “Ltd” following the name of the company. To have a lucid understanding we can jot down an example like “XYZ Ltd Company”.
Read Our Blog: Private Limited Company Registration Online Process

Within the realm of a private Ltd Company, shares of such a company cannot be sold by the shareholders without having to obtain the agreement by the other shareholders. On a general basis, the model of a Private Ltd company is based on the business structure that can range from being a small one to that of the medium one, however there is nothing that prevents relatively bigger companies to adopt such a structure.

Usually there exists different levels at which the management of a company is carried out, but with respect to a private Ltd company, there might be no difference between the shareholders and that of the directors.

Apart from the above mentioned things, it can be put forth, that capital can be infused into such a company by making the investors to buy its shares. By adopting such a channel, it would be ensured that there remains a wall that separately identifies the ownership of the company from that of the total control.

With respect to the company’s annual general meeting, the role of the shareholders is not of much importance since their opinion is not sought after when the big decisions are concluded. During such a meeting, the overall performance of the company is examined with major focus on the accounts.

Private Ltd Company and its Major Features

This type of company is established as duly recognized by law with limited liability. Besides this there are limitations with respect to the matter of ownership.

In case of such a company, the liability associated with that of the members runs parallel to the quantity of the shares, which are duly held by them. The shares of such a company can be accessed in the domain of the public.

It cannot be put to argument that a private Ltd company offers the best structure for carrying out the business activities. It is indeed a very popular structure that has won the confidence of the people, especially the ones who wish to start their own business like entrepreneurs. It is no hidden fact that there is a need of only two people to kick start the process of registration.

To summarize as to why the private Ltd Company is possibly the best course of action, following points can be highlighted:

  1. In the very first place, it can be said that the liability of the shareholders is not extensive, rather it is very much limited, this in turn makes this form of business registration a very flexible one. 
  2. In the next place, a private Ltd Company has the ability to get hands on the funds, especially the equity funds.
  3. Further, it enjoys the status of having a separate legal identity that too autonomous one.

Private Ltd Company and its First-hand Requirements

Jotted down below are some of the first-hand requirements that must be followed by any private Ltd Company:

Read Our Blog: How to Wind up Private Limited Company?

  1. In the first place, with respect to the directors, there should be at least two in number on a minimum basis. Both the directors must fall within the bracket of the prescribed age limit.
  2. Amongst the two directors, one is required to fulfill the criteria that mandate that he/she should be an Indian citizen and also an Indian resident.
  3. With respect to the other director, he does not necessarily be from an Indian territory, which means he can be from a territory other than that of the Indian one.
  4. For such a business to come into existence, it demands that two shareholders must be present at any cost.

Private Ltd Company: Associated Advantages

There are numerous advantages that come along following the concept of a private Ltd company.

In case of a private Ltd company, the business can be kick started with the much needed capital investment as gained through a carefully chalked out strategy which is very different when compared to the business that is not incorporated. Enough finance can be raised by employing such tactics which shall help in positively persuading the people to buy the shares. This can be given effect by the entrepreneurs. 
Read Our Blog: Private Limited Company: Winding Up Legalities

Mostly it is seen that the major loss that a shareholder would have to face is equivalent to the amount as spent by them in buying the shares. Totally opposite scenario can be visualized in the case of the partnership firm, since the partners can be affected to a larger extent, if somehow the business does not function up to the mark.

With respect to a private company, there is due acknowledgement on behalf of the shareholders that their money would remain being tied up that too for a longer duration.

Why the Startups Must Resort to Having Their Business Modelled in Lines with the Private Ltd Company?

Given below are the reasons that sustain the very fact as to why the startups must be ready to embrace the structure of a private Ltd company.
1)    On the very first basis, it can be said that in setting up of such a company, there is no such requirement of what we call as minimum capital. Registration of such an entity can be obtained with only the sum of around ten thousand, which can deemed to be total share capital that is authorized.

2)    On the other hand, a private Ltd company embraces an altogether a separate legal identity if viewed from the perspective of the law. This pinpoints to the fact that there is a clear distinction when it comes to the assets of directors to that of the assets held by the business. This holds true in case of the liabilities as well.

Also, the aspect of ownership holds distinction from that of the management under the garb of such an entity. Hence, it can be said that the managers are the ones who would be answerable and hold accountability when the matter is pertaining to the success of the company.

3)    Another feather in the cap of such an entity is with respect of the feature that speaks of limited liability. This feature performs the role of securing the assets of the members from being utilized in paying the debts in case a financial crisis takes place. 

Due to this, the members do not have to bother much about having to meet the damages that might take place in the future. In any event wherein it is related to debt, the liability of the members would stand at par with their shareholding only. 

Throwing light on the above point, such inference can be drawn which runs heavy on the fact as to why it is the best idea for startups to model their business on the structure of a private Ltd company.

4)    Yet another cherry on the cake is that such entities have to bear relatively less exposure that comes along with the possibility of the risk. This in turn makes it very clear that such entities are relatively less prone to the idea of limited funding.

It is hence very much accurate to say that with respect to such entities, it seems feasible in having to procure the funds from different sources which can range from Venture capitalists to that of the angel Investors. This in itself presents a lucrative idea as to why such a form of business stands above all other forms.

5)    The event involving the demise of the member, would not in any way lead to dissolution of a private Ltd company. Such a threat if surfaced can be well mitigated. The unforeseen circumstances would not shake the roots of the perpetual succession. The operation of the company will go on without having to stop. 

Therefore it is indicative of the fact that the continuation of the company takes place with full vigor except in the case of the winding-up or having to legally dissolve.

6)    Foreign direct investment can be duly attracted without any problem owing to the fact that the private Ltd Company bears a profile that limits the possibility of the future risks. Large chunks of investments can be fuelled by the foreign investors in order that more benefits can be reaped.

Further, it can be said that the continuous flow of the funding from the foreign sources cements the fact that the private Ltd Company is a good idea which must be incorporated by the startups.

7)    When talking about the transfer of the shares, it would be carried out in an easy manner. 

Register the Private Ltd Company: Overview of the Whole Process

With the introduction of the web form, known as SPICe+, the process entailing the registration of a private Ltd Company has witnessed an easier way out. In order to get the firm registered, the official website related to the Ministry of Corporate Affairs must be visited by the applicant. Thereafter, the prescribed form in this regard must be duly filled up by the applicant.
Read Our Blog: Private Limited Company Compliance

SPICe+ offers an online form that consists of all the necessary impediments with respect to the process of incorporation. This form entails a division into the relevant Part A and that of the Part B.

The Part A extends assistance to the applicant with respect to name reservation. This would ensure easier way to apply for the same. If the requisite details are furnished by the applicant with respect to the proposed name, thereafter an inspection would be conducted by the online portal in real time, in respect of name availability.

Part B of the above mentioned SPICe+ form facilitates the user by making a request pertaining to the services as given below:

  1. In the first place, it is with regards to the allotment of the Director’s Identification Number i.e. DIN.
  2. Secondly, the EPFO registration must be issued on a mandatory basis.
  3. Further, the ESIC registration must be issued that too on a mandatory basis.
  4. The professional Tax registration must also be issued mandatorily.
  5. A bank account must be opened in the name of the company. 
  6. There is a need of GSTIN allotment, in case it has been applied for.

Conclusion

It is indeed a herculean task to make the business reach the heights of success since there is no sure-shot guarantee that it would definitely succeed. Perhaps there is a need to cement the priorities and to sort out every single decision with great care and precision. The decisions should take into account the need to have a sturdy business structure. This is where the need of a private Ltd company comes to the rescue. 

In the nutshell, it can be concluded that a private Ltd company comes packed with a bundle of advantages and is a repository of benefits. This makes it the most preferred choice of the startups.

Hence, it is proved as to why the startups must keenly adopt the business structure offered by a private Ltd Company. It would only create a double-win situation.

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Author
Shamshad Alam
Experienced Digital Marketer with a demonstrated history of working in the internet industry. He likes to write about the latest technology trends, Skilled in Digital Marketing likes. Search Engine Optimization, SMO, SEM, PPC, Content Writing, and, Designing, etc.